Here's why venture capitalists are banking on biotechnology.
For eager venture capitalists, the Internet bubble created the illusion that they could routinely make huge money overnight — and that might have been the case back then. But then the bubble burst, and gone were the days of swift deals and fast bucks. Not long after, investors realized that they’d have to refocus, and biotechnology — a field shunned by investors just six months before — soon became an upright pillar amid heaps of dot-com rubble.
“People who invested in the Internet, in a lot of ways felt they were investing in technology, but what they were really investing in was content and media,” says Barry Weinman, general partner of California-based investment firm AVI management. “So a lot of people who made investments into Internet companies, especially dotcoms, are refocusing on the technology area and biotech is getting a good share of that.”
Even though venture capital investments in the second quarter of this year were down 61 percent from the year prior, according to the National Venture Capital Association, the percentage of investment dollars going into biotechnology and other life sciences increased from 4 percent to 13.8 percent in the same period.
According to NVCA, as of the second quarter this year, $447.7 million was invested into 41 biotechnology companies across the nation, with an average investment of $10.92 million per company. The increased focus on biotechnology, where it can take several years to actually develop a product, shows that investors are again getting comfortable with longer time horizons for a return on investment.
“Biotech certainly is a technology risk, but there have been significant breakthroughs over the last several years and the potential possibilities are really mind-boggling right now,” says David Watumull, president of Hawaii Biotechnology Group Inc. Watumull received $30 million in research funding and is currently looking for first-round funding of $2 million. He says: “Investors are starting to take notice again. It’s really been in the last six to 12 months, but it’s growing.”
Some attribute the peak in interest locally to the arrival of Dean Ed Cadman and his enterprising ways to the University of Hawaii at Manoa John A. Burns School of Medicine in 1999. “There is a clear relation, it’s just not one which is immediately discernable or quantifiable,” says Martin Rayner, associate dean for research at the medical school. “Although it is certain, talent and enterprise drive funding.”
According to Rayner, the medical school has gone from about $2 million in federal funding two years ago to $13 million this year. In addition, there are plans to add roughly 30 tenured positions to the school, thereby dramatically increasing the number of independent faculty backed by federal funds. General Partner Bill Richardson of HMS Hawaii Management Partners says: “An increase in federal funding to UH is inevitable, and that’s absolutely important, because money drives products and products drive us.”
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